Economic arguments of Farm Bills 2020

Dr Sunil Bhardwaj
Ever since the Government of India has passed three Farm Bills, farmers, particularly from the State of Punjab and Haryana, have started protesting saying that these bills will destroy present mandi system, distort the Government’s procurement network and throw open the Indian agriculture sector to the generosity of the corporates. India is a democracy and every citizen of the country has a right to express his opinion on the Government plans and policies but there is a flip side to the story as well.
Agriculture is a very critical sector of the Indian economy which contributes approximately 17% to the country’s Gross Domestic Products and provides livelihood to over 70% of the rural population. Due to the hard efforts of successive governments, agriculture production has increased to a value of USD 459 billion in 2019 from USD 101 billion in the year 2000. But unfortunately, the condition of many small and marginal farmers across the country has hardly changed and the number of farmer’s committing suicide every year is still worrisome. Researchers attribute farmer’s suicide to crop failure, price crash, debt burden, property disputes, failure of irrigation facilities, the marriage of daughters and family problems etc. It is a matter of grave concern that even after 74 years of independence farmers suicide constitutes 11.2% of total suicides in our country. Moreover, the small and fragmented landholdings, lack of modernisation, excessive dependence on monsoon, frequent price interventions, lack of marketing facilities, sluggish fertiliser industry, lack of agriculture infrastructures like warehouses, cold storage etc, and lack of investments in agriculture make the life of a majority of Indian farmers miserable. Not only this, feeding approximately 1.3 billion population which is growing at an alarming rate with a shift in their consumption pattern will be an uphill drive for the Indian agriculture sector in the years ahead. Central Government’s vision of doubling the farmer’s real income till the financial year 2022-23 over the base year of 2015-16, requires annual growth of 10.41 per cent in farmers income. This ambitious dream is possible only by increasing productivity, resource efficiency, cropping intensity, diversification towards high-value crops, labour output and with proper policies and institutional mechanism set in place.
It is in this context, the Government of India for the first time introduced long-pending reforms through the legislation of three important bills to create an ecosystem, where the farmers and the traders can enjoy the freedom of choice related to sale and purchase of farm produce at competitive prices.
Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020.
This act will decide the framework for contract farming between the farmer and a buyer (agri-business firms, wholesalers, exporter or retailer) at a mutually agreed remunerative price. This will provide the farmer with an advance assurance of price for their agriculture produce based on pre-decided terms and conditions like time of delivery, quality parameters, standards etc. This agreement between the parties related to farm produce shall be exempted from any state act and is governed under this act only. The agitating farmers are of the view that in the initial years of an agreement the buyers will give them guaranteed pre-decided price for their farm produce but will cheat them in the long-run. They also feel the grievance redressal mechanism under this act which makes the SDM or District Collector as a final authority is not sufficient to provide them justice against powerful corporate houses. The majority of Indian farmers are illiterate and approximately 86% are small and marginal with landholdings less than two hectares. According to agitating farmers, this law places them at the mercy of powerful business houses and are therefore demanding the provision of civil courts in the event of a dispute between the parties.
This act allows farmers to produce crop based on market demand for a particular food crop giving them high profitability and market relevance. Quite recently, Moga village of Punjab has emerged as a hub of Broccoli cultivation due to its high demand and nutritional value earning high profitability per acre of land for the farmers. Similarly, there is a huge demand for mushrooms, dairy products, flowers etc in the country which can be sold in the open market. The new act promotes forward integration of farm sector with the manufacturing sector which is a viable business model for bringing the farmers out of financial distress and poverty as done by Varun Agro Ltd. in Maharashtra. It allows farmers to engage with processors, large retailers, exporters etc and enable their access to modern technology and better inputs resulting into reduced cost of marketing and high profitability.
Farmers Produce trade and commerce (Promotion and Facilitation Act, 2020.
The act allows hassle-free inter-state and intra-state trade and commerce of agriculture products without any market fee, cess or any levy on farmers or farmer organisations. The new farm laws allow farmers to sell their agriculture produce outside the APMC (Agriculture Produce Market Committee) Mandis without any tax on such trade. Now, the farmers have a choice to sell their produce anywhere in the country eliminating middleman resulting in full realisation of price. This step has been taken to give space to private players and set up a free market regime for agriculture products for the facilitation of ‘One India One Agri-Market.’ The farmers are apprehensive that the Government wants to do away with public procurement of agriculture products at MSP (Minimum Support Price) without having put an alternative system into operation and is perceived as a shock by the agitating farmers. The Government hasassured farmers that MSP will remain. Moreover, even APMC doesn’t enforce the procurement of agriculture produce from farmers at MSP.
Initially, MSP was started as a safety provision for the farmers, if their crop remained unsold in the market and to incentivise farmer to produce a crop for ensuring food security in the country. The procurement price (buffer stock or PDS) was always kept below market price and higher than MSP. In the event of high crop production, the farmer’s first preference was to sell at the market price and then to the Government at a procurement price. Any unsold crop was then to be sold to the government at MSP in the end. Over the years, MSP has become a major political stunt and has made Indian farmers comfortable in huge production of rice and wheat whereas the consumption patterns are shifting towards protein-rich crops. Instead of adapting to the market forces of demand and supply, the farmers started banking on pressure tactics on government, as a remedy to their problems. According to the Food Corporation of India website, the food grain stock in the central pool has surged from 514.42 lakh metric tonnes in December 2016 to 811.11 lakh metric tonnes in September 2020. A significant quantity of this stock is rotting in the warehouses. This limits the Government’s capacity to purchase more grain from farmers. Indeed, many economists do not support the idea of procurement of agriculture produce by the Government as it leads to huge fiscal expenditure on transportation, storage and distribution etc. Rather, economists believe that market-driven models can give more promising results in the long run.
The Essential Commodities (Amendment) Act, 2020 amends the Essential Commodities Act, 1955 which empowers the central government to control the production, supply, distribution, trade and commerce of certain commodities like foodstuffs, essential drugs, fertilizers, petroleum and petroleum products etc. The act removed certain food items like cereals, pulses, potato, onion, edible oil seeds from the list of essential commodities which means removing the restriction on storage except under extraordinary circumstances like war, famine, extraordinary price rise and grave natural calamities. It shall restrict hoarding and malpractice only when retail price rise shall be 100% for horticulture produce and 50% for non-perishable produce.
Many farmer organisations said that mass procurement at village level and legalising hoarding of essential commodities will increase prices at the farm levels. They argued that private players can restrict the supply of essential commodities into the market to create artificial demand to earn extraordinary profits which the Government needs to monitor. The amendments in the act can be seen in the light of Economic Survey 2019-20, which suggests that interventionalist Government policies like the imposition of stock limits in a bid to control prices have actually increased price volatility in many essential commodities. Recent experience of soaring onion prices has shown that these market interventions are not working in Indian context and there is a need to make a distinction between storage and hoarding. In contrast to new law, the original law (ECA, 1955) discourages the development of storage infrastructure leading to supply shocks and price volatility in the agriculture commodity market. The new law aims at encouraging private players to go deep into villages and buy their farm produce at remunerative prices to enhance farmers income.
India has done tremendous work in all the areas to enhance agriculture production over the years. However, the fast-growing country’s population which is expected to reach 1.7 billion by 2050 with changing consumption patterns is a challenge for the agriculture sector. To make agriculture sector future-ready and market-relevant, new policy reforms are prerequisite which includes strengthening research and development, creating new technologies, skill up-gradation etc. Pragmatic steps and policy reforms will help us to explore and exploit the demand for agriculture commodities in India as well as in other countries giving more confidence and profitability to the stakeholders. India is built on the hopes and aspirations of its citizens and efficient implementation of policy reforms will acts as a catalyst in building India of our dreams. Moreover, the steps taken by the governments must be assessed and evaluated based on merit, common good and kept above the narrow political considerations.
(The author is a faculty of Business Studies University of Jammu)